Mumbai: HSBC downgraded India to underweight from neutral, marking its second downgrade in two months. The decision stems from inflationary pressures driven by elevated oil prices and demand, which could hinder earnings growth.
Previously, HSBC had cut India to neutral in late March, citing a less attractive risk-reward scenario. Although the sell-off in March alleviated some valuation concerns, anticipated pressure on corporate profitability may negate this advantage.
HSBC stated, “Valuations have fallen materially from their peak, but they will rise again as earnings cuts come through.” The brokerage remains most optimistic about China, Hong Kong, and Singapore, while upgrading South Korea to neutral from underweight. Indonesia and Thailand are also among its least preferred markets.
Despite the downgrade, HSBC identifies opportunities in India’s private banks, base metals, and select healthcare companies, although the case for Indian equities has weakened as “headwinds erode India’s standing versus the rest of the region.”
